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Mark Graham wonders if the $200+ bln worth of housing work that we need to do will overwhelm our capacity and our economy

Mark Graham wonders if the $200+ bln worth of housing work that we need to do will overwhelm our capacity and our economy

By Mark Graham*

In a good year the construction industry contributes around 4-5% of GDP, employs over 150,000 people and every $1 spent in building has a flow on effect of up to $5 to the wider economy.

The last five years, however, have not been good years and the industry has been running at two-thirds its normal levels.

Now the National and Labour parties want to increase building activity to reduce pressure on house prices and to provide housing in Auckland at prices that more people can afford.

What is not being taken into account is that the industry is already facing major issues: a pending major increase in home building as demand ramps up to normal levels compounded by shortages caused by under-activity for the past few years, work required to rebuild Christchurch, repair leaky homes, strengthen buildings for future earthquakes and prepare Auckland for another million people.

The pending work facing the country is staggeringly enormous.

No plans

The construction industry will need to increase in size by 300% to cope but there does not seem to be any realistic plan to cater for this, perhaps because it is unrealistic to expect this to happen.

Unfortunately, New Zealand is facing a shortage of skilled tradespeople following years of businesses collapsing and workers leaving for Australia.

Evidence for these trends playing out is being seen in the shortage of skilled tradespeople in Auckland and a well-publicised shortage of builders and related trades in Christchurch.

Labour is proposing to build 100,000 homes around the country, mainly in Auckland and Christchurch. While their plan gives a three year timeframe to gear up the industry, there is still the question as to whether there will be sufficient builders at the end of that time.

National is also now looking at Housing reforms – speeding up the consent process and intending to open up greenfield areas around Auckland’s periphery to create more sections for building on with a goal of 39,000 homes for Auckland within three years.

There were 3,500 new homes built in Auckland in the last 12 months, so that represents an increase of more than 10,000 homes per year.

Incidentally, given that many of these homes will likely be large stand-alone houses on reasonably sized sections that will sell for more than the current average house price, it’s hard to see how this will help alleviate a housing affordability problem in Auckland.

Regulatory brakes

Also impacting is the new licensing scheme for builders designed to create consumer confidence in builders severely dented by the leaky homes fiasco.

However, there are significant issues over the Skills Maintenance regime that is supposed to maintain skill levels amongst licensed builders, with builders, 50% of whom are semi-literate (according to the Productivity Partnership report into building productivity), able to choose which courses they do, no auditing of those courses, and only random audits of builders to ensure they are claiming legitimate points.

The big issues

Perhaps the major issue is how to pay for this $200-250 billion of construction work.

Much of this will be borne by private owners who will have to borrow to pay for their build. This will be added to the $140 billion currently owed by New Zealanders and have a major impact on the private debt levels held by New Zealand.

At least the Labour/Greens plan is self-funding, if somewhat unrealistic. National seems to be sidestepping the whole problem. Either way, the housing crisis facing New Zealand is more complex and with more frightening implications than most people realise.

There is certainly a case for greater consumer education from the Ministry of Business, Innovation and Employment – the Department now in charge of building.

Changes to legislation controlling house building sees responsibilities for quality control moving from Councils to builders and homeowners with the implication for this confluence of trends being  a potential to repeat the Leaky Home crisis as we see demand increase, a shortage of skilled builders, and fewer council inspections. Consumers need to be aware of their obligations and not abdicate responsibility to their building professionals.

There is also a definite need for government assistance on delivering the capability for skill development within the building trades, rather than focusing on fast-tracking and ‘build, build, build’. This will have the added benefit of bringing in young people into training and eventual employment and help ensure good quality housing is provided.

More resources need to be given to builder education – remedial reading and a more robust skills maintenance regime as a bare minimum, but ideally business training, project management and technology skills – to help builders be better at their profession and ensure better outcomes around building projects for their customers.

Wanted: a bipartisan approach

Finally, a more considered, and ideally bipartisan, approach to supply of new housing will contribute to growing employment, better housing, and supply of housing types that are in demand in a controlled way and in a way that will control our potential exploding debt.

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Mark Graham is the publisher of the Design Guide, Building Guide, Building Guide website and BoB – The Business of Building: guides for homeowners and builders in residential construction. www.buildingguide.co.nz You can contact him here »

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19 Comments

Thank you Mark

This is one of the most realistic and comprehensive articles I have read in a long while.

The Productivity Commission stated over 2000 qualified Kiwi builders left around 2008/2009.

Industry capacity is at an all time low with a lack of qualified builders.

Residential Property Developers still cant secure funding and section stock is drying up across the country.

 

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Yes, agree. A much better piece than some we have been getting recently. Some comment as to the potentially inflationary impacts might also be of interest.

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Have you booked your ticket?

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"Unfortunately, New Zealand is facing a shortage of skilled tradespeople following years of businesses collapsing and workers leaving for Australia."

And why is that? What were Fletchers offering contractors again? Anything below $40hr just is not worth a damn.  After expenses, taxes, gst, ACC..........why would anyone bother!

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Bingo.

 

Why do none of these people commentating on here ever get around to our repressed wages facilitated by a complicit government favouring continued corporatisation under a system of monopolistic duopolies and oligopolies.

 

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Personally, I'd rather our leaders and people here start questioning ever increasing costs and the long term consequences. 

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And there was a time when the man who eventually became our PM (for better or worse) built his own house. From all accounts - well built and survived the quakes in Christchurch OK.

Perhaps we could retrain our politicians to do something useful again and solve two problems.

Cheers, TP

 

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Kimy - hope you are blogging this somewhere in one place (as well as scattered comments on Interest).  It is Much appreciated, as Tales from the Pit are very, very useful in slowly bringing the ineptocracy into control.

 

Oh, and keep those costs running - your estimate of Interest on Capital Committed (at IRD use-of-munny rates) would be extremely useful too, given that the Clueless Council has lobbed the ball back over into your side of the net (and, not coincidentally, stopped the clock on their side...)

 

Once again - keep us all informed - we do truly appreciate the updates.

 

On a lighter note, you could try for a Future-Proofing approach to parking - tell 'em that you intend to sell only to dedicated Greens, who will ride electric scooters, bicycles or recumbent unicycles - none of which need mucvh manoeuvering room.

 

And Erosion and Sedimentation control can be easily solved - just concrete the entire outdoors....

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Tell 'em to believe, and that with the full time 4wd and all, its doesn't matter, as nothing much gets in the way (genuine factory fitted bull bar and all) though thank you for asking ....

http://content.toyota.co.nz/toyota/new_vehicles/general/brochures/recre…

 

They have not asked if the garage door is insulated....

 

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I'm guessing ..

 

They don't want folks having to park on the street.

 

They don't want folks having to back out of their driveways.

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..I no little about the RMA but what you show explains the inherit bias that occurs re motor-vehicles.  That is, an assumption that all of us have and will always have a private vehicle and this must be planned for.  Tell em you ride a bike and have no need for a car!

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As horrific as dealing with Council plannners and Urban designers can be what you have listed is so basic it should have been on your drawings when first submitted. This information has been required since 1991 when the RMA was written.

 

The district plan has rules (which may or not be good ones). When lodging for a RC you have to show how you comply with those rules. 

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An excellent article.  Good to see some thinking grounded in facts and figures for a change as opposed to blue sky dreaming and spin.  Clearly the industry cannot be geared up 300% sensibly or without creating a whole bunch of problems and distortions elswhere in the ecconomy. 

-What will happen to the huge industry we will have created when the activity ramps down again.  The enevitable collapse represents a large waste.

- The manpower we are, and will have to bring into the country will place demands on housing also and therefore increase the problem.

- etc etc.

The only sensible thing to do is prioritise our goals and try to achieve them as much as possible within a sensible increase of our current resources and manpower (train the 7% unemployed and other workers who are barely productive).  The other cruicial thing is to reduce the demand as much as possible.  Stopping immigration and property sales to foreigners would be the single most effective way of doing this.  These two activities are like pouring petrol onto a raging fire, but strangely there seems a strong force within the establishment to encourage them.  One has to be suspicious of what the hidden agenda is.  Certainly nothing that has been revealed to the public or justified by any sort of mandate.

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Borrowing to buy a new-build, instead of an existing house, won't increase debt levels - it just puts the money where it belongs (into production...rather than inflation).    If we release the land supply to drive back section costs to where they should be, this also will hold back debt by holding back borrowing. However, with the shortages we have in the industry, construction will go up in price (in theory creating the profit-signal to bring more builders back into NZ, and into the industry from training). I can imagine this impact will also be mitigated, in part, from the importation of kit-sets homes. It will take some time - but it can be done, surely, relatively quickly.   As for training: Invest in video-based training material. Get people to watch the video lecture/example at home, and come into school to do the practical, etc. Discover how fast and efficient practical education can be when we utilise technology properly. 
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The solution mentioned by the above problem will be done the traditional New Zealand way .....imports.

 

We import everything...Now we can start importing Labourers for constructions ala Christchurch style....import construction materials ala Auckland Chinese construction material supplies.....anything else we need? Just import them.....

 

Our Reserve Bank is fully behind this enterprise as they insist that our high Kiwi Dollar is nothing to be afraid of, otherwise they would have done something about it by now....

 

Our Goverment too is of the opinion that a High Kiwi Dollar is good for the economy...

 

So overall, we should just import everything we need...in fact if possible we should import fully built up houses from China....

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kin:

Reserve Bank is fully behind this as they insist that our high NZD is nothing to be afraid of, otherwise they would have done something about it by now ...
 

It's called cowardice
By hiding behind a strong NZD, and relying on the NZD to do their dirty work for them they can blame it on some-other-guy when it all turns to custard .. who me? .. nah .. wasn't me ..  was that otherguy

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@kimy | 30 May 13, 9:17am

You should check out car stacking.  walk around Parnell you will see some, this should solve the problem of having 2 cars in one parking space.  I was told the cost isn't too bad.

http://www.carstackers.co.nz/nz-installations

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I think our council got a copy of the Mafia’s business plan and they are using it.

A friend of mine in Auckland has an old carport.  Sometime in the 70s, council installed a storm water pipe across his carport.  Now the car port needs to be rebuilt.  Under schedule 1 he wouldn’t need a permit.  But because it has a public storm water pipe under it.  Council will need him to submit a resource consent and WaterCare will comment on it as well as doing video surveillance before and after the build, the fees will be about 8 grands + the cost of the new carport.

However, he can freely replacing the bits of his carport that need replacing and eventually over time he will replace everything have a new car port, save 8 grands.. so go figure!

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Thanks for the positive comments re the article.

Hugh - I'm not an economist and just added the numbers as they've been reported to me. I am happy to bow to your greater knowledge and would love to see your analysis if you have time to post.

best regards

Mark Graham

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